Insurance is Worthless, Until You Need it

You can insure pretty much anything these days. Did you know people are now buying health insurance for their pets?

Just because it’s out there doesn’t mean you need it. The idea of insurance is to protect your wallet against things you can’t afford to lose.

Here are 5 types of insurance that make sense for most people:

1. Health insurance. There’s a lot of noise right now about the new healthcare law (a.k.a. Obamacare) and how it will affect everyday Americans. It seems like everyone has misconceptions about the law. If you already have health insurance through your employer that you like, you’ll be allowed to keep it. Without getting political here, I think it’s a good idea for everyone to have some level of health insurance. The government shouldn’t force people to do so. But the fact is, we all get sick. Those without insurance force society to pick up the tab. At the very minimum, get a high-deducible health savings account to protect yourself against catastrophic injuries and illnesses.

2. Disability insurance. Somewhat related to health insurance, disability insurance provides a percentage of your income if you’re unable to work because of sickness or injury. There are two types: short term and long term.

According to some estimates, 3 in 10 Americans will become disabled at some point during their careers. After sick leave has been exhausted, short term disability (STD) insurance kicks in and provides typically 60% of your salary for up to 6 months. Common causes of STD claims are heart attack, back pain and arthritis.

Long term disability (LTD) insurance picks up where STD insurance ends. You generally receive 50-60% of your salary for up to 10 years, but a policy that covers you until age 65 is best. LTD insurance covers you for things like connective tissue disorders, cancer, or catastrophic injuries that leave you permanently unable to work.

3. Life insurance. Your career is your greatest asset. What would your family do if you weren’t around anymore to provide an income? I’ve written about this before, but you want your family to be financially stable in the event of your death. If you have a spouse, kids under 18 or other dependents, you need life insurance. A simple level term policy is best. And please, do not buy life insurance on your kids.

4. Auto insurance. In almost every state, auto insurance is mandatory for drivers. Not only that, it’s the responsible thing to do. Driving without the means to make others whole in the event of an accident puts others at financial risk, and is just plain dumb. At minimum you need liability coverage, which includes coverage for bodily injury and property damage you cause to others. If your car has significant value, you also need collision and comprehensive coverage, which pays to repair your car after an accident or other event. Prices vary widely, so shop around to find the best deal.

5. Homeowners insurance (renters insurance). Most people who own a home have insurance, but those who rent rarely do. If your apartment burned down, how would you replace your stuff? Your landlord’s policy only protects the dwelling. You need your own policy to protect your things. Replacement value coverage is best because it covers the cost to replace an item, rather than the actual depreciated value. See my previous post about how to buy renters insurance. A typical policy runs $150-200 a year.

Next week we’ll talk about some insurance policies you can skip.

Simplify Your Life: Do These 5 Things After Buying a Car

Buying a car, whether new or used, should be an exciting experience. Most people buy new wheels every 5 years or so. But for those of us who keep cars a decade or longer, getting a new one only happens a handful of times in our lifetime.

Because cars are the second largest purchase we make, most of us put a lot of time and effort into researching and narrowing down our choices. And that’s great. My wife and I just bought a new car, and I must have put in over 40 hours of research, test drives and deliberation.

Our new car, a 2013 Hyundai Elantra

But what should you do after driving off in your new car? I have a few suggestions that will make your life easier and extend the life of your vehicle.

The first thing you need to do is shop around for the best car insurance rate. You’re required to have insurance before you drive off the dealer’s lot, which is fine, but you want to make sure you’re getting the best deal. Call at least three insurance companies and get quotes for your exact situation. If you have more than one vehicle, your best deal will come when you bundle them together. Let them know about your car’s safety features including airbags, running lights and whether it has an anti-theft system. They’ll ask you how many miles you drive each year, so have a number ready.

When you’ve found your best deal, don’t forget to take your old car off your policy if you sold it or traded it in.

Next, get in and play around with all the buttons and knobs. Don’t do this while driving. I know it’s tempting to play around with stuff as you’re driving home for the first time, but safety comes first. Read through the owner’s manual and become familiar with any safety features. Anything you may be tempted to fidget with while driving, do it now.

Speaking of safety, head over to SaferCar.gov and check for any recalls that have been issued for your model. Better yet, register for their recall notification system. You’ll receive an email as soon as a recall is issued. There are 600 vehicle recalls each year on average, so this system gives you an easy way to stay informed.

If your credit is good enough to qualify you for these historic interest rates, give yourself a pat on the back. I don’t think car loans will ever be this cheap again in our lifetimes. I just took out a 5-year loan at 1.99%. That’s cheap money! Take your time paying it off. Any extra money you have each month should go towards other goals, such as saving for retirement.

Finally, now is a great time to develop good maintenance habits. This is the biggest reason I decided to buy new, which I wrote about last week. New cars offer a blank maintenance slate. You know the maintenance history because you’ll be the one doing it. With used cars, who knows if the previous owner or owners stuck with the schedule. Nothing will extend the life of your car more.

The Case for Buying a New Car

Most money-saving experts support buying a used car instead of a new one as a way to save. Since buying a car is the second-biggest purchase we make, the potential savings are huge.

I’ve been thinking a lot about cars lately because of some personal circumstances. One of our until-now reliable cars decided it wasn’t going to start up, so we had it towed to the mechanic where it sits today, more than a week later. As luck would have it, our other car was involved in an accident the very next day. There were no injuries and the car is still driveable, but it leaves us in a tough spot. How much should we spend repairing these cars, considering they are 11 and 8 years old, respectively? Should we instead look at buying a new car?

I also discovered this excellent article over at the NY Times. The author talks about why it sometimes makes sense to spend a little extra to get something we really want. He decided to save up and buy a bike that was more expensive than he could afford at the time. He’s seen others go through three or four bikes in the time he’s had his. He argues that in some cases it makes sense to buy good things and own them a long time.

Buying a good thing (new car) comes with several benefits, the most important of which is reliability. That’s at the top of everyone’s list when car shopping. After all, the point of owning a car is to get us from place to place reliably, right? (Unless you’re a rock star, in which case you also need to arrive fashionably.)

With used cars, you have no idea whether the previous owner followed the recommended maintenance schedule. By buying new, you know the maintenance history because you’ll be doing it yourself. The best way to make your car reliable is to follow the maintenance schedule to a T. Sure, you could take a used car to a mechanic and have it checked out. But even if it’s clean, you don’t know what kind of use and abuse it was subjected to.

New cars come with a warranty, while most used cars are sold as-is. Used car salesmen are allowed to tell you lies about the car’s condition and history. I assume most are honest, but this is a pretty big risk to take to save a few grand.

Another important consideration is safety. Safety standards continue to improve, and with new cars you’re likely to benefit from the latest developments. Some of my favorites are electronic stability control, knee airbags and the blind spot indicators on rear-view mirrors. These features are found on many cars costing less than $20,000, which would have been unthinkable five or ten years ago.

Then there’s that new car smell. Who doesn’t like that?

Lots of people like to buy new cars, drive them four or five years, then trade them in towards a new car. They constantly make car payments instead of holding on to the car for a few more years, payment-free. These people have no business buying new cars.

If you’re going to buy a new car, plan to keep it at least ten years. Why ten? Depreciation is the largest cost of driving a new car. Not gas, not insurance or maintenance. Depreciation is the loss in a car’s value over time. It’s a ticking clock that erodes the value of your car, and starts the minute you drive off the lot. The hit you’ll take from depreciation is greatest in the first three to four years you own the car. In order to recoup these costs, you need to spread them out over time by driving that car at least a decade.

Buy a reliable new car, follow the maintenance schedule and keep it a long time. Your wallet will thank you.

Do you buy new or used? Why?

Photo by thefinancialphysician.com

Ripoff Alert #8 – Car Spotting Edition

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Car Spotting

What a despicable, slimy practice used by some of the nation’s car dealerships.

You’re at the new car dealership, test driving a few cars and weighing the pros and cons of each one. You make your decision and the negotiation begins. After a few rounds of the “grind,” as they call it in the industry, you settle on a price. Now it’s time to fill out the financing paperwork.

Does this sound familiar? If so, you’re among the 80% of Americans who finance their new vehicles at the dealership. “What’s wrong with this?” you ask. “Dealerships are one-stop shops for my car-buying needs.” Well, I’m about to tell you why the number one rule of car buying is to arrange your financing before you enter the dealership.

As part of their pitch, car salesmen love to tout the “ultra-low rates” they can get you for a car loan, “this week only!” They promise you unbelievable rates, and allow you to drive off in your new car with almost no money down. You leave thinking what a steal it was to get a new car so cheap.

A week or two later, you get a phone call from the dealer saying the financing didn’t go through. They need you to come back in to discuss more financing options. When you get there, they say that while your 0.9% loan didn’t go through, they can get you one for 8.9%!

Now, after having shown off the car to all your friends and family, who’s going to give the car back to the dealer? That’s embarrassing.

The problem is dealerships have no idea up front whether your loan will actually go through. The interest rate they quote you in the deal is at best their educated guess of an appropriate rate for your credit risk profile, and at worst a deceitful, unrealistic ploy to get you to buy a car.

There’s a clause in your contract that states the deal is subject to financing. A common misconception is that once the papers are signed it’s a done deal. Confronted with this situation, you could always hand back the keys and tell them to have a nice day. But you’re still responsible for the depreciation from mileage put on the car. This could easily be hundreds or thousands of dollars. And if you traded in your old car or made a hefty down payment, the situation can get complicated very quickly.

This scam most often targets people with below-average credit, who believe they’re at the mercy of the dealership for financing. Regardless of your credit score, the best option for financing a new vehicle is through a credit union or small community bank.

Buying a new car should be a fun experience. Arranging your financing in advance helps the process go smoothly and steers you clear of this common scam.

Never Pay Full Price for These Things

Faced with decreased earnings as a result of the recession, consumers are putting their frugal mindsets to greater use. We’re increasingly demanding discounts and coupons on more categories in an effort to cut back our spending.

Let’s use dining out as an example. As a child growing up in the 90’s, I don’t ever remember my parents clipping restaurant coupons. Maybe it was because we lived in a small town with only a few restaurants to choose from. Today, I couldn’t imagine not looking online for a coupon before going out to eat. I don’t find one every time, but when I do the average savings is about 20%.

WiseBread has a list of 25 things to never pay full price for. I want to focus on a few and share some strategies that have worked for me.

1. Magazines

If you’re looking for a good variety of current, free magazines, look no further than your local library. Most libraries offer dozens of the most popular titles. If the library isn’t your thing, check out DiscountMags.com. They offer yearly subscriptions of rotating titles as low as $4, but you have to search for a coupon code to get that price. Amazon also has a good selection at decent prices.

Each time a renewal notice comes for one of your subscriptions, it’s a good idea to think about whether you actually read the magazine anymore. Do they sit in a pile on the coffee table collecting dust? If so, it’s time to cancel your subscription.

9. Gift Cards

Unless you are getting cash back or rewards points on your credit card, you should never pay full price for a gift card. Think about it. You’re taking actual, real cash and turning it into credit that you can only use at one store. For that inconvenience, you should get a discount of at least a few percent. Buying gift cards at a discount is a great way to save money before you even walk into the store.

GiftCardGranny.com is the best site I’ve seen for buying gift cards. It compiles gift cards from many different sources, so you don’t have to visit several sites to find the best deal. They give you a list of available cards from each store and provide info including the discount you get, shipping cost (if any) and who the seller is. I recently saw a JC Penney card valued at $130 on sale for $107 with free shipping — a discount of 18%!

13. Car Rentals

A quick trip over to Expedia to search for rental cars tells us that an economy car can cost as much as $50 a day, with the lowest price at $30. That’s expensive. So how do you find the best deal on a rental? There are two things you can do.

The first is to use Priceline. Using blind booking, you must agree to book a non-refundable rental for a set date. If you know your trip will definitely happen and you don’t care which company you rent from, this is the best way to go. You can save up to 40% using this method.

The second is to book at the cheapest published rate you can find online. Because car rentals are fully refundable pretty much up until the day of your trip, you can re-book at any time if a lower rate comes along. But who wants to constantly monitor for better rates? A new site called AutoSlash has developed a solution. You can either search for rentals on their site or enter a rental you’ve already booked. Then, they continually monitor for coupon codes or lower rates that pop up and automatically re-book you at the lower rate. It doesn’t get much easier than that!

Conclusion

Nobody should pay full price for everything they buy anymore. New websites become available every day to help us get a better deal on the things we buy. Use these resources and your own creativity to come up with ways to save on just about anything.

Image by swewhattearitup.wordpress.com

How to Save on Car Repairs

I think it’s safe to say that most of us dread going to the mechanic. In fact, many would probably rather go to the dentist than navigate through the maze of car repair shops. Not only is it possible to find an honest repair shop, doing so will give you peace of mind and save you big bucks on car repairs.

The best thing you can do is to find a good repair shop before you experience a problem. I realize that in some cases this may be too late — when you’re stuck on the side of the road with smoke coming from the engine, for example. But hopefully you have at least a little time before trouble strikes.

To find a good mechanic, start by asking those around you where they take their cars. Find out where your coworkers, friends, neighbors, and even those in your social network go for maintenance and repairs. Another tactic I use is searching for internet reviews. I’ll look up repair shops on a search engine and see what others have to say. If a shop has multiple positive reviews, you’re probably on the right track. Finding an honest, reliable repair shop in advance will give you peace of mind when you do have to take your car in for repairs.

Use RepairPal to get a repair estimate. This tool will give you a total estimate for almost any job, breaking it down into labor and parts based on your zip code. Knowing the repair cost before you even take the car in helps you avoid getting ripped off.

For more expensive repairs, always get a second opinion. A few years ago my car needed new front shocks. The first shop I took it to quoted me $700. I called another shop and they estimated it would cost $500. I then looked around online and found a coupon for 10% off, so it ended up being only $450. Just a few minutes of work saved me $250.

Skip unnecessary maintenance. You could be changing your car’s oil or other fluids too often. Many people go by the old rule that says you should change the oil every 3,000 miles. But many cars built today are made to go 5,000 or even 7,500 miles between oil changes. Check your owner’s manual for the recommended interval.

Find parts yourself. Say you need a new headlight assembly. First, try calling your local salvage yard to see if they have any in good condition that would fit your car. If that doesn’t work, check auto part stores in your area to see if they have it in stock. One other place I have used in the past is the Parts and Accessories section of eBay Motors. This is especially helpful for hard-to-find parts for older or discontinued models. Mechanics charge more for parts than what you’d pay by finding the part yourself.

If you’re the adventurous type, do simple maintenance and repairs yourself. Replacing tail lights, checking fluids and installing new windshield wipers are simple tasks that can be done in your driveway. To start, look on YouTube for videos that walk you through the process for your particular car. I’ve replaced spark plugs and changed the oil and filter using guidance I found on the internet. More complicated repairs, such as brake work or replacing belts, should probably be done by a mechanic to minimize problems down the road.

Finally, consider a diagnostic tool that tells you what’s ailing your vehicle. This one from CarMD is considered one of the best out there. Plug it into your vehicle’s connector and it will tell you why your check engine light is on. Then, using your computer, you can find out more details including the estimated cost of repair. As an alternative, some auto parts stores will do this for free using their scanner. Some of these tools can be used to turn off your check engine light if the issue is a loose gas cap — a common trigger of check engine lights.

Car repairs can be expensive, but using these tips will keep the cost low and help you avoid getting ripped off.

Photo by bestsandiegoautomechanic.com

New Site Takes the Hassle out of Car Buying

When you think about buying a new car, there are so many variables involved. There’s the average fuel economy and reliability ratings from Consumer Reports. There’s the cost to insure the vehicle. Then there’s the actual cost of the vehicle itself. How can you be sure you’re getting the best price, or even a good price, for the vehicle you choose?

A new site called TrueCar aims to solve this problem. They noticed an information gap in the marketplace that made it difficult for consumers to get a fair deal on a new car. Using information they provide, car buyers can now be confident they won’t be taken at the dealer.

You start by entering in the make and model you’re looking for and your location. On the next page, you get a price report based on the options and trim level you choose. They tell you what your “target price” should be, which is the price you can reasonably expect to pay. They also provide a helpful graph that shows the typical range of prices other people have paid for the car.

One thing I really like about TrueCar: They tell you what the actual dealer’s cost is. This gives you bargaining power if you decide to negotiate with the dealer on your own.

When you’re satisfied with your selections, you’re able to locate dealers near you and get a guaranteed price certificate. All you have to do is go to the dealer with your certificate in hand and drive off in your new car at the guaranteed price (assuming you’ve arranged financing.)

As an example, I chose a 2012 Ford Fusion SE. The dealer’s cost is $19,933, and the target price for my area is $20,647. It tells me that a great price is anything below $20,806. There are 3 certified dealers in my area willing to provide a price.

There’s no cost to the buyer to use this service. TrueCar makes its money charging dealers about $300 for each customer that ends up buying a new car through its service.

This site has the potential for increased sales at dealers, but many aren’t happy. Profit margins are already fairly thin on new cars, and dealers fear that TrueCar will further reduce their ability to make money. They also fear that customers will simply obtain a dealer’s best price, then go to another dealer to ultimately buy the car at an even better price. There’s no question though that TrueCar and other similar services will revolutionize the way we buy cars going forward.

For a lot of people, the worst part of buying a new car is haggling with the dealer over price. If this sounds like you, TrueCar can make the car-buying experience as painless as possible, and maybe even enjoyable!

Photo by fordinthenews.com